Author Archives: Henry

September 2021 Newsletter

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HENRY C KULIK, JR CPA, LLC
TAX UPDATE NEWSLETTER
09/27/2021

There are many swirls around Washington DC re: changes in the US tax code. Please, do not accept the political speeches as truth. Instead, I have researched the proposed laws, printed a copy of the roughly 3,000-page $5.6 Billion combo package between the “Infrastructure bill” and along with the huge goody bag of new “human infrastructure” benefits and tax credits (none for business), and researched numerous proposed tax law changes in professional tax publications.

A few other interesting features of the bill leaked: the Child Tax Credit used to be for you own children, live with you for 6 mo. Now, 1 day and IRS won’t care where they came from, and you’ll get the (new $3,600 per child) entire Child Tax Credit (all refundable now!)

$13B of the new budget busting bill is to purchase electric vehicles and cars for the entire post office and ALL government agencies and employees .(Note- all batteries from China)

INDIVIDUALS

  1. Increase the maximum individual income tax rate to 39.6% and reduce the trigger point (before surtaxes) from 37% for single filers earning over $400,000, Head of household above $425,000, and married filed joint above $450,000, Married filing separate $225,000. Remember to add the existing “Obamacare surtax” of 1% to all earned income over $200,000 *single, over $225,000 Head of Household, and $250,000 MFJ, while married filed separate over $125,000). Add another 3.8% to any “investment income”. (Capital gains, gambling winnings, rental income, and interest/dividends) on the same thresholds noted above.
  2. Creates a new 3% wealth surtax” on modified adjusted gross income above $5 Million
  3. Stops allowed IRA contributions when balances reach $10M, and accelerate RMDs.
  4. Stops “Backdoor IRAs” into Roth IRAs
  5. Enacts a new “journalist tax deduction” of 50% of their salary. Wow! Time to be a reporter!
  6. Increased tax compliance by doubling the size and IRS enforcement staff by 100%
  7. New capital gains tax on un-realized profits. If your stock portfolio is worth $100,000 and your cost was only $50,000, you’ll have to pay tax on the “paper gain” of $50,000 even though you have not sold any. That’s one of many “income adjustments” that can push a middle-class family into the “wealthy” tax bracket(s) if they hold a large portfolio.
  8. Expand the new Child Tax Credit expansion through 2025 and making all of it fully refundable permanently. Adds 17-year-old teens to that credit, just as it did temporarily for 2021.

CAPITAL GAINS

  1. Increase the capital gains rate to 25%, plus the surtax of 3.8% = 28.8%
  2. Extend the holding period for carried interest from three to five years

ESTATE AND GIFT TAXES

  1. Reduce the estate tax ‘exemption’ beginning in 2022, instead of 2026 to a new low of $6,020,000. Changes the unified estate tax credit.

BUSINESS AND PASS-THRU TAXES

  1. Reduce the maximum value of the Section 199A (20% tax break) to $400,000 (single filers) and $500,000 (joint filers)
  2. Make the 3.8% surtax apply to all pass-thru (K-1s from S Corporations, etc.)

CORPORATE & INTERNATIONAL TAXES

  1. New tax rate of 26.5% applying to corporate income above $5M
  2. Reduce foreign tax credit to 5%
  3. NOLs (Net Operating Losses) only good for 5 years ahead (was 20 years), and NO carrybacks
  4. Interest expense deduction to be limited.

OTHER TAXES

  1. R&D expenses now amortize over 5 years, NO more immediate deduction
  2. Limit deductions for executive payroll
  3. Increase of federal excise, tobacco, and vapor products (Cigarette packs $2.00 increase)
  4. Reinstate the Superfund tax on crude oil and gasoline products (+16.cents/gallon), double on chemicals
  5. Valuation rule changes on certain transfers on non-business assets

There is way too much to write about here, including the winners and losers. But I thought everyone deserved to see at least a summary of what appears to become law.

ECONOMIC EFFECTS OF THE HOUSE WAYS/MEANS PROPOSAL (BUILD-BACK BETTER?)

Reduction of GDP by 1.06 percent

Reduce long-term American income by 1.2 percent

Wage reductions by 6.8%

Job loss of 422,000 jobs

 

Effects from the Tax Foundation in D.C.

 

 

 

Tax Advocate points out IRS filing season problems

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Tax Advocate points out IRS filing season problems

NTA Blog: 2021 Filing Season Bumps in the Road: Part I

The National Tax Advocate (NTA) has pointed out IRS’s problems in processing tax returns this filing season and in communicating to taxpayers the status of their returns. It has also made suggestions for improved communications.

Problems processing tax returns. The NTA notes that there have been larger-than-usual processing delays and attributes this situation to a combination of the high volume of 2020 tax returns requiring manual processing, the backlog of unprocessed 2019 paper tax returns, congressional mandates to issue economic impact payments (EIPs) and provide other relief to taxpayers during the pandemic, limited resources, and technology issues.

Some new complexities this year necessitated manual reconciliation of returns, slowing down processing times. For example, any inconsistencies between IRS’s records for the EIP and the recovery rebate credit (RRC) reflected on a taxpayer’s 2020 Form 1040 or Form 1040-SR, U.S. Tax Return for Seniors, require manual review and corrections before processing. And the Consolidated Appropriations Act, 2021 included a lookback rule allowing taxpayers to elect to use their 2019 income for the purpose of calculating their Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) on their 2020 tax return. A manual review of a tax return is also required if the taxpayer elected the 2019 “income lookback” to calculate the EITC or the ACTC.

Any corrections to the RRC or verification of the 2019 lookback election are being manually processed by IRS’s Error Resolution System (ERS) unit, and IRS is placing the associated return in “suspense” until an IRS employee can review it to verify the 2019 income or the prior EIP. Essentially, the return is in a queue waiting to be reviewed and processed, and during this time, it is not evident on IRS systems why the return is being held.

Holding returns has resulted in a significant increase in ERS inventory and delays in taxpayer refunds. As of the week ending April 9, 2021, more than eight million individual returns (Form 1040 or 1040-SR) were in suspense status awaiting review and manual processing. For context, during a normal filing season when the ERS unit is fully operational, it does not suspend returns, as it is able to review and process them as they come in.

In addition to the eight million returns of individuals in the IRS ERS unit, there were millions of other returns in other IRS units also awaiting manual processing:

  • 5.3 million individual 2019 and 2020 paper returns;
  • 4.7 million individual returns with processing errors or fraud identification issues requiring responses from taxpayers; and
  • 11 million business and other returns.

In total, IRS was holding over 29 million returns for manual processing. As one would expect, IRS employees are stretched thin working through the manual processing of these returns, so if a taxpayer’s return is pulled for manual processing, there will be delays.

Problems in communicating to taxpayers. IRS has advised taxpayers to check the status of their refunds by using the Where’s My Refund? tool on IRS.gov or on the IRS2GO app on their smartphones. The NTA says that the usefulness of this advice is limited, since these tools only tell taxpayers that their return is being processed but fail to provide any details as to whether they need to provide additional information or when the refund will be released.

Many frustrated taxpayers may attempt to call IRS for a status update on their tax refund. This filing season, IRS has seen an increase in calls to its Accounts Management (AM) toll-free lines of over 300%. As of April 10, 2021, IRS employees have answered about 2% of the roughly 70 million taxpayer calls to IRS’s 1040 telephone line, and IRS has reported an official “Level of Service” of 5%. In other words, only about one out of every 50 calls has gotten through to a telephone assistor, and the taxpayers who managed to get through have waited on hold an average of 20 minutes.

To date, the 1040 toll-free line accounts for about 60% of the incoming AM calls. Overall, IRS has received about 115 million calls on its AM lines; employees have answered approximately 7% of all such calls, and IRS has reported an official “Level of Service” of 14%. If a taxpayer is one of the lucky ones to get through, it’s unlikely the assistor can provide much useful information regarding the reason for the delay because IRS systems don’t identify why the return needed manual intervention by an ERS employee.

Similarly, Taxpayer Advocate Service employees are frustrated as they cannot identify the potential problem with the return or how they can best assist the taxpayer, leaving both the employee and the taxpayer with unanswered questions.

Suggestions for improving communications. The NTA says that even if the delays are unavoidable, there are steps IRS can take to mitigate their impact. Most immediately, IRS can provide taxpayers with more specific information so they know what to expect and, where possible, they can make adjustments to manage their finances. Specifically, to ease taxpayer concerns, IRS should be more transparent and specific regarding the status of taxpayer refunds.

For example, IRS should directly inform taxpayers that if they claimed the RRC and the claim conflicts with IRS records, or if they used their 2019 earnings to calculate the EITC or ACTC on their 2020 return, their return will require additional review and manual processing, resulting in a refund delay. IRS should also provide information on the number of returns in backlog or suspense status and the anticipated timeframes for working through them, while acknowledging that the situation is fluid and the timeframes may change along with circumstances.

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SPECIAL EDITION HENRY KULIK CPA NEWSLETTER 03/31/21

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SPECIAL EDITION HENRY KULIK CPA NEWSLETTER 03/31/21

Dear Client:

The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, is the latest major legislation that provides economic relief and stimulus, both tax and non-tax, during the Covid-19 pandemic.

Below are brief summaries of the key aspects of the tax provisions in ARPA.

Provisions Affecting Individuals

Recovery rebate credits (stimulus checks). ARPA provides a third round of nontaxable stimulus checks directly payable to individuals. The payments are structured as refundable tax credits against 2021 taxes but will paid in 2021 (not 2022).

The maximum payments are $1,400 per eligible individual ($2,800 for married joint filers) and $1,400 for each dependent (which, unlike the first two stimulus payments, includes older children and adult dependents). The payment phases out proportionally between $75,000 and $80,000 AGI for single filers, $112,500 and $120,000 for head of household filers, and $150,000 and $160,000 for married joint filers.

Rules for identification, for payments made notwithstanding no filing of 2019 and 2020 returns, and for limitations on offsets apply. Eligibility is based on information from 2020 income tax returns (or 2019 returns, if 2020 returns haven’t been filed when the advanced credit is initially issued). For households whose payment was based on 2019 income data, and who would be eligible to receive a larger payment based on 2020 data, IRS is directed to issue a supplementary payment.

Child tax credit. For 2021

  1. Qualifying children include 17-year-olds,
  2. The credit is increased to $3,000 per child ($3,600 for children under six years of age), but the increase is subject to modified AGI phase out rules (and the existing modified AGI phase out rules for eligibility for any credit at all continue to apply),
  3. The credit is refundable, and
  4. IRS will make periodic advance payments totaling 50% of its estimate of the credit in the last half of 2021.

Earned income tax credit (EITC).

  1. For 2021 the credit is increased for taxpayers with no qualifying children and age restrictions for those taxpayers are relaxed;
  2. After 2020 taxpayers that have a qualifying child but can’t meet the identification requirements for the qualifying child are nevertheless allowed the credit;
  3. Taxpayers may use the greater of their 2019 or 2021 earned income in calculating the credit for 2021;
  4. After 2020, the amount of investment income that a taxpayer can have and still earn the credit is increased; and
  5. After 2020 there is broadening of the existing exception to the credit’s joint filing requirement under which separated married people eligible to file jointly are allowed the credit even if they don’t file jointly.

Child and dependent care credit. For 2021

  1. The credit is refundable;
  2. The amount of qualifying expenses taken into account for the credit is increased from $3,000 to $8,000 if there’s one qualifying care recipient and from $6,000 to $16,000 if there are two or more;
  3. The maximum percentage of qualifying expenses for which credit is allowed is increased to 50% from 35%; and
  4. Phase-down rules, based on AGI, are changed.

The increased dependent care assistance program exclusion amount (see below) under Code Sec. 129 will also affect the child and dependent care credit, as the amount of expenses taken into account for the credit is reduced by the amount excludable from the taxpayer’s income under Code Sec. 129.

Dependent care assistance programs. For 2021, the amount excludible under a dependent care assistance program is increased to $10,500 (or $7,500 for a married taxpayer filing a separate return). Retroactive plan amendments are allowed to facilitate the increase.

Health care premium assistance credit. For 2021 and 2022, the credit will be available for a larger percentage of insurance premiums, and individuals whose income is greater than 400% of the poverty line will be eligible for (rather than barred from) the credit. For 2020, individuals who were provided advances of the credit under the Patient Protection and Affordable Care Act in excess of the credits to which they are entitled aren’t obligated to pay back the excess. And, notwithstanding any other rules, individuals who receive unemployment compensation during 2021 are eligible for the credit (and under rules that increase the amount of the credit).

Income exclusion for unemployment benefits. For 2020, taxpayers with modified AGI less than $150,000 can exclude from gross income $10,200 of their unemployment benefit. The exclusion is available to each spouse if a joint return is filed. For taxpayers who already filed 2020 returns and did not exclude unemployment benefits, IRS said that taxpayers shouldn’t file an amended return and that additional guidance will be provided.

Student loan forgiveness. Beginning in 2021 and continuing through 2025, the forgiveness of many types of loans for post-high school education won’t result in income inclusion for the forgiven amounts.

Provisions Affecting Businesses

Payroll tax credits. The paid sick leave and family leave credits are extended to apply to wages paid through September 30, 2021 (instead of March 31, 2021).

There are also changes to these credits, including:

  • One major change is that during the two-quarter extension period the credits are applied against the employer Medicare portion of payroll taxes instead of the OASDI (Social Security) portion. The Medicare taxes taken into account are those for all employees, not just employees to whom qualifying leave wages are paid. But the credits continue to be refundable (and, thus, allowed in excess of the Medicare taxes) and advance refundable (they can be applied against any employment taxes, including income tax withholdings, for the quarter in which eligible leave wages are being paid, with any remaining credit refundable at the end of the quarter).
  • An additional major change is that the allowable credit can be increased by both by both the amount of the OASDI taxes paid and Medicare taxes paid with respect to eligible leave wages, instead of just the Medicare taxes.
  • Rules are provided that coordinate the leave credits with second draw Payroll Protection Program loans and certain government grants.
  • The no-double benefit rule, which disallows claiming both
    1. Either of the above credits and
    2. The income tax credit for family or medical leave is expanded to include similar coordination with certain other income and payroll tax credits.
  • An employer is ineligible for the leave credits if, in providing paid leave, the employer discriminates in favor of highly compensated or full-time employees or on the basis of employment tenure.
  • IRS is allowed an extended limitation-on-assessment period for deficiencies due to claiming either of the leave credits.
  • ARPA allows employers who voluntarily provide 80 hours of emergency paid sick leave and 12 weeks of emergency family leave beginning after March 31, 2021 to claim the leave credits, thereby resetting the leave bank regardless of whether the employee used leave previously or has exhausted leave.
  • The employee retention credit is extended to apply to wages paid before January 1, 2022 (instead of July 1, 2021). The result is that as a general rule (but see below) there is allowed a maximum per employee credit for 2021 of $28,000 ($10,000 of wages taken into account per quarter multiplied by the credit rate of 70%).
  • Also, there are modifications to this credit. A major change is that for the last two calendar quarters of 2021 there is allowed a maximum $50,000 credit per quarter to certain small start-up businesses (and under relaxed eligibility rules). This change makes a limited credit available to some businesses that couldn’t qualify for the credit at all because they can’t meet either the full/partial suspension or 20% drop-in-gross-receipts requirements. And, during those two quarters certain distressed businesses will be able to treat all wages as eligible (up to the $10,000 per quarter limit), enabling employers with more than 500 employees, who can ordinarily treat only wages paid to laid-off workers as eligible, to treat any wages as eligible.
  • Another of the major changes is that the change to applying the credit to Medicare taxes (discussed above for the paid sick and family leave credits) also applies (along with the continuing refundability and, for employers with no more than 500 employees, advance refundability of the credit).
  • Under related rules, the relieved amounts aren’t included in the income of the individuals and there is imposed by the Internal Revenue Code a penalty on individuals that fail to report the end of their eligibility.

Self-employment sick and family leave credits. These credits, which are creditable against the income tax, have been extended to apply to eligible days through September 30, 2021 (instead of March 31, 2021). A major change is that both credits treat as reasons for eligible leave the obtaining of or recovering from Covid-19 immunization. And, for the family leave credit, reasons for eligible leave are expanded to include all qualifying reasons for taking sick leave.

Another major change is that in determining whether the 10-day per tax year limit for the sick leave credit is complied with, only days after December 31, 2021, are taken into account (thus restarting the count and often increasing the cumulative number of eligible days). And, a major change to the family leave credit is that the maximum number of eligible days per tax year is increased from 50 to 60, again with only days after March 31, 2021 taken into account (resetting the count and often increasing the cumulative number of eligible days).

Excess business losses. In a revenue raiser, the disallowance of excess business losses is extended to run through 2026 instead of 2025.

Deduction disallowance for over $1 million employee remuneration . In another revenue raiser, for tax years beginning after calendar year 2026, the $1 million annual cap on the deductibility of remuneration paid to certain categories of employees of publicly held corporations is expanded to include as a new category the five highest compensated employees not included in other categories.

Tax treatment of certain non-tax relief. ARPA provides favorable tax consequences for targeted Economic Injury Disaster Loan (EIDL) advances made by the SBA under the Economic Aid to Hard-hit Small Businesses, Non-Profits and Venues Act. The advances aren’t included in income and the income exclusion doesn’t result in deduction disallowances, denial of basis increases or reduction of other tax attributes. The same treatment applies to SBA Restaurant Revitalization Grants.

Pension plans. ARPA relaxes some funding standards and other IRC or ERISA rules for multiple employer pension plans. For single employer plans, IRC or ERISA rules are relaxed for amortizing funding shortfalls and the pension funding stabilization percentages are changed. Also changed are the special rules that apply to community newspaper plans.

Reporting by third party settlement organizations. ARPA tightens the de minimis exception to tax reporting by third party settlement organizations (TPSOs, e.g., PayPal) by excluding from reporting only transactions that don’t exceed $600 (and eliminating the 200-transaction threshold). ARPA also clarified that TPSO reporting obligations are limited to transactions involving goods and services.

Foreign tax. In a revenue raising provision, IRC section 864(f), which provided a one-time election under which, effectively, corporate groups could allocate some interest expense from foreign to domestic corporations and reduce the effect of limits on the foreign tax credit, is repealed. The repeal is retroactive to the election’s effective date (i.e., for tax years beginning after Dec. 31, 2020).

I’m available at your convenience to discuss in more detail any of the ARPA changes and how they apply to you.

Very truly yours,

Henry c. Kulik, Jr.,

Certified Public Accountant LLC

 

IMPORTANT NOTES:

The IRS has issued a Notice that extends, from April 15 to May 17, additional tax deadlines for individuals. Among other things, the Notice extends the time for filing Federal income tax refund claims due on April 15, 2021, and making IRA and HSA contributions. The Notice also provides that foreign trusts and estates that file Form 1040-NR, now have until May 17, 2021 to file their returns and pay any tax due.

Background. On March 17, 2021, the IRS extended, from April 15, 2021 to May 17, 2021, the federal income tax filing and payment deadline for individuals for the 2020 tax year. See IRS extends filing deadline to May 17 (03/18/2021).

More deadlines extended. The IRS has now extended to May 17, 2021 deadlines for the following:

IRAs and Roth IRAs. Making contributions to IRAs and Roth IRAs, the time for reporting and paying the 10% additional tax on 2020 distributions from IRAs or workplace-based retirement plans. Note though that the deadline for filing Form 5498 (IRA Contribution Information) series returns related to these accounts is extended to June 30, 2021.

Health and education accounts. Making contributions to health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs) and Coverdell education savings accounts.

2017 Refunds. Making refund claims for the 2017 tax year, which are normally due April 15. Taxpayers must properly address, mail, and ensure the refund claim (e.g., return) is postmarked on or before May 17, 2021.

Form 1040-NR. Returns of foreign trusts and estates with federal income tax filing or payment obligations that file Form 1040-NR.

Annual Filing Season Program. Applying to the Annual Filing Season Program (AFSP) for calendar year 2021. Tax preparers now have until May 17 to submit an application to participate in the AFSP.

Deadlines NOT extended. The IRS has not extended the April 15, 2021 estimated tax payment due date. These payments are still due on April 15.

Reference. For extension of tax-related deadlines for taxpayers affected by disasters, see FTC 2d/FIN ¶ S-8502.

Special Newsletter

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Dear Client:

Here is an overview of key provisions in the recent COVID relief legislation that affect individuals. The legislation is the COVID-related Tax Relief Act of 2020 (the “Act” or COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both of which are part of the Consolidated Appropriations Act, 2021.

RECOVERY REBATE/ECONOMIC IMPACT PAYMENT

Direct-to-taxpayer recovery rebate. The Act provides for a refundable recovery rebate credit for 2020 that will paid in advance to eligible individuals, often automatically, early in 2021. (Code Sec. 6428A, as added by COVIDTRA Sec. 272) These payments are in addition to the direct payments/rebates provided for in earlier Federal legislation, the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020), which were called Economic Impact Payments (EIP).

The amount of the rebate is $600 per eligible family member—$600 per taxpayer ($1,200 for married filing jointly), plus $600 per qualifying child. Thus, a married couple with two qualifying children will receive $2,400, unless a phase-out applies. The credit is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for marrieds filing jointly and surviving spouses, $112,500 for heads of household, and $75,000 for single taxpayers.

Treasury must make the advance payments based on the information on 2019 tax returns. Eligible taxpayers who claimed their EIPs by providing information through the nonfiler portal on IRS’s website will also receive these additional payments.

Nonresident aliens, persons who qualify as another person’s dependent, and estates or trusts don’t qualify for the rebate. Taxpayers without a Social Security number are likewise ineligible, but if only one spouse on a joint return has a Social Security number, that spouse is eligible for a $600 payment. Children must also have a Social Security number to qualify for the $600-per-child payments.

Taxpayers who receive an advance payment that exceeds the amount of their eligible credit (as later calculated on the 2020 return) will not have to repay any of the payment. If the amount of the credit determined on the taxpayer’s 2020 return exceeds the amount of the advance payment, taxpayers receive the difference as a refundable tax credit.

Advance payments of the rebates are generally not subject to offset for past due federal or state debts, and they are protected from bank garnishment or levy by private creditors or debt collectors.

Pro-taxpayer changes to CARES Act Economic Impact Payment rules. As noted above, the CARES Act provided EIPs.

The Act makes the following changes to the CARES Act EIP:

  • Provides that the $150,000 limit on adjusted gross income before the credit amount starts to phase out, which, under the CARES Act, applied to joint returns, also applies to surviving spouses. (Code Sec, 6428(c)(1), as amended by Act Sec. 273(a)) This change may allow taxpayers who qualify to use the surviving-spouse filing status to claim a larger EIP on their 2020 returns.
  • Makes the requirement to provide IRS with the taxpayer’s identification number identical to the same requirement under the new rebate, described above under “Direct-to-taxpayer recovery rebate.” (Code Sec. 6428(g), as amended by COVIDTRA Sec. 273(a))

DEDUCTIONS

$250 educator expense deduction applies to PPE, other COVID-related supplies. The Act provides that eligible educators (i.e., kindergarten-through-grade-12 teachers, instructors, etc.) can claim the existing $250 above-the-line educator expense deduction for personal protective equipment (PPE), disinfectant, and other supplies used for the prevention of the spread of COVID-19 that were bought after March 12, 2020. IRS is directed to issue guidance to that effect by Feb. 28, 2021. (COVIDTRA Sec. 275; Code Sec. 62(a)(2)(D)(ii))

7.5%-of-AGI “floor” on medical expense deductions is made permanent. The Act makes permanent the 7.5%-of-adjusted-gross-income threshold on medical expense deductions, which was to have increased to 10% of adjusted gross income after 2020.

The lower threshold will allow more taxpayers to take the medical expense deduction in 2021 and later years. (Code Sec. 213(a), as amended by Act Sec. 101)

Mortgage insurance premium deduction is extended by one year. The Act extends through 2021 the deduction for qualifying mortgage insurance premiums, which was due to expire at the end of 2020. The deduction is subject to a phase-out based on the taxpayer’s adjusted gross income. (Code Sec. 163(h)(3)(E)(iv)(I), as amended by Act Sec. 133)

Above-the-line charitable contribution deduction is extended through 2021; increased penalty for abuse. For 2020, individuals who don’t itemize deductions can take up to a $300 above-the-line deduction for cash contributions to “qualified charitable organizations.” The Act extends this above-the-line deduction through 2021 and increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers). (Code Sec. 170(p), as added by Act Sec. 212(a)) Taxpayers who overstate their cash contributions when claiming this deduction are subject to a 50% penalty (previously it was 20%). (Code Sec. 6662(l), as added by Act Sec. 212(b))

Extension through 2021 of allowance of charitable contributions up to 100% of an individual’s adjusted gross income. In response to the COVID pandemic, the limit on cash charitable contributions by an individual in 2020 was increased to 100% of the individual’s adjusted gross income. (The usual limit is 60% of adjusted gross income.) The Act extends this rule through 2021. (Code Sec. 170(b)(1)(G), as amended by Act Sec. 213)

EXCLUSIONS FROM INCOME

Exclusion for benefits provided to volunteer firefighters and emergency medical responders made permanent. Emergency workers who are members of a “qualified volunteer emergency response organization” can exclude from gross income certain state or local government payments received and state or local tax relief provided on account of their volunteer services. This exclusion was due to expire at the end of 2020, but the Act made it permanent. (Code Sec. 139B, as amended by Act Sec. 103)

Exclusion for discharge of qualified mortgage debt is extended, but limits on amount of excludable discharge are lowered. Usually, if a lender cancels a debt, such as a mortgage, the borrower must include the discharged amount in gross income. But under an exclusion that was due to expire at the end of 2020, a taxpayer can exclude from gross income up to $2 million ($1 million for married individuals filing separately) of discharge-of-debt income if “qualified principal residence debt” is discharged. The Act extends this exclusion through the end of 2025, but lowers the amount of debt that can be discharged tax-free to $750,000 ($375,000 for married individuals filing separately). (Code Sec. 108(a)(1)(E), as amended by Act Sec. 114(a))

Extension of exclusion for certain employer payments of student loans.  Qualifying educational assistance provided under an employer’s qualified educational assistance program, up to an annual maximum of $5,250, is excluded from the employee’s income. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020) added to the types of payments that are eligible for this exclusion, “eligible student loan repayments” made after Mar. 27, 2020, and before Jan. 1, 2021. These payments, which are subject to the overall $5,250 per employee limit for all educational payments, are payments of principal or interest on a qualified student loan by the employer, whether paid to the employee or a lender. The Act extends the exclusion for eligible student loan repayments through the end of 2025. (Code Sec. 127(c)(1)(B), amended by Act Sec. 120)

TAX CREDITS

Individuals may elect to base 2020 refundable child tax credit (CTC) and earned income credit (EIC) on 2019 earned income. If an individual’s child tax credit (CTC) exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit equal to 15% percent of so much of the taxpayer’s taxable “earned income” for the tax year as exceeds $2,500. And the earned income credit (EIC) equals a percentage of the taxpayer’s “earned income.” For both of these credits, earned income means wages, salaries, tips, and other employee compensation, if includible in gross income for the tax year. But for determining the refundable CTC and the EIC for 2020, the Act allows taxpayers to elect to substitute the earned income for the preceding tax year, if that amount is greater than the taxpayer’s earned income for 2020. (Act Sec. 211(a))

Health coverage tax credit (HCTC) for health insurance costs of certain eligible individuals is extended by one year. A refundable credit (known as the health coverage tax credit or “HCTC”) is allowed for 72.5% of the cost of health insurance premiums paid by certain individuals (i.e., individuals eligible for Trade Adjustment Assistance due to a qualifying job loss, and individuals between 55 and 64 years old whose defined-benefit pension plans were taken over by the Pension Benefit Guaranty Corporation). The HCTC was due to expire at the end of 2020, but the Act extended it through 2021. (Code Sec. 35(b)(1)(B), amended by Act Sec. 134)

New Markets tax credit extended. The New Markets credit provides a substantial tax credit to either individual or corporate taxpayers that invest in low-income communities. This credit was due to expire at the end of 2020, but the Act extended it through the end of 2025. Carryovers of the credit were extended, as well. (Code Sec. 45D(f)(1)(H), amended by Act Sec. 112(a))

Nonbusiness energy property credit extended by one year. A credit is available for purchases of “nonbusiness energy property”—i.e., qualifying energy improvements to a taxpayer’s main home. The Act extends this credit, which was due to expire at the end of 2020, through 2021. (Code Sec. 25C(g)(2), amended by Act Sec. 141)

Qualified fuel cell motor vehicle credit extended by one year. The credit for purchases of new qualified fuel cell motor vehicles, which was due to expire at the end of 2020, was extended by the Act through the end of 2021. (Code Sec. 30B(k)(1), as amended by Act Sec. 142)

2-wheeled plug-in electric vehicle credit extended by one year. The 10% credit for highway-capable, two-wheeled plug-in electric vehicles (capped at $2,500) was extended until the end of 2021 by the Act. (Code Sec. 30D(g)(3)(E)(ii), amended by Act Sec. 144)

Residential energy-efficient property (REEP) credit extended by two years, bio-mass fuel property expenditures included. Individual taxpayers are allowed a personal tax credit, known as the residential energy efficient property (REEP) credit, equal to the applicable percentages of expenditures for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pump property. The REEP credit was due to expire at the end of 2021, with a phase-down of the credit operating during 2020 and 2021. The Act extends the phase-down period of the credit by two years—through the end of 2023; the REEP credit won’t apply after 2023. (Code Sec. 25D(h), as amended by Act Sec. 148(a))

The Act also adds qualified biomass fuel property expenditures to the list of expenditures qualifying for the credit, effective beginning in 2021. (Code Sec. 25D(a), as amended by Act Sec. 148(b)).

DISASTER-RELATED CHANGES IN RETIREMENT PLAN RULES

10% early withdrawal penalty does not apply to qualified disaster distributions from retirement plans. A 10% early withdrawal penalty generally applies to, among other things, a distribution from employer retirement plan to an employee who is under the age of 59½. The Act provides that the 10% early withdrawal penalty doesn’t apply to any “qualified disaster distribution” from an eligible retirement plan. The aggregate amount of distributions received by an individual that may be treated as qualified disaster distributions for any tax year may not exceed the excess (if any) of $100,000, over the aggregate amounts treated as qualified disaster distributions received by that individual for all prior tax years. (TCDTR Sec. 302(a))

Increased limit for plan loans made because of a qualified disaster. Generally, a loan from a retirement plan to a retirement plan participant cannot exceed $50,000. Plan loans over this amount are considered taxable distributions to the participant. The Act increases the allowable amount of a loan from a retirement plan to $100,000 if the loan is made because of a qualified disaster and meets various other requirements. (TCDTR Sec. 302(c)(3))

Next month we start a new MONTHLY newsletter for all of our clients!

Henry

SEPTEMBER 2020 NEWSLETTER

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HENRY C KULIK, JR LLC – SEPTEMBER 2020 NEWSLETTER

09/20/20

Happy fall, everyone!

It is time for a tax update again. I tried to get one out earlier this year, especially with the COVID 19 rules for forgiveness ever changing, however, we have been extremely busy and running short handed all summer. Finally, we are fully staffed! (While the IRS and DOR are not)

Further, below I have done my best to outline tax differences between the two candidates for President (next section below) as I have every election year.

  1. Due date was 9/15 for all corporate (extended) tax returns on a calendar year. Since its already past that date, the late file penalty for S Corporate filings is $205 per month per K-1 shareholder. Those penalties start on 09/16/2020 as well as later filings for any 1120S tax return filing using the calendar year. Additional interest and penalties will apply too, compounded daily. If you have not turned in your books/records for your 2019 1120S tax return, please do so immediately! I have several ways out of the penalty, but specific conditions must be met.
  2. New “Payroll tax cut” was put in place for the employee’s benefit effective September 01, 2020, but it’s only a deferral or “loan.” They all must be repaid between January and April 2021 unless congress “forgives” the amount (NOT LIKELY). The entire program is voluntary. No employer is required to do this. In fact, I would not suggest taking any action on this matter.
  3. 2019 Individual returns (extended) are due 10/15/2020. Information must have reached us at least by October 01, or timely filing cannot be guaranteed.
  4. $1,200 + stimulus checks. Likely, if your 2019 tax return is not filed, as soon as you do, your stimulus will be released. IRS is starting to get on top of this, hiring another 5,000 people to help with numerous telephone calls, and inquiries. If you were entitled to it, but didn’t receive it because 2018 data was used instead of 2019, you can get the credit on the 2020 tax return
  5. IRS is still very behind on any letter or tax return filed paper. They are still running very short-handed, and most employees are working from home, sometimes with limited access to taxpayer files. Allow 9 months to 1 year for any response! Payments, responses, and filings should all be electronic Few delays generally occur there. Even IRS notices are going out late via US mail (NOT quick and speedy). Audits are way down using fewer agents in the field, however computer exams continue.
  6. NEW!! For 2020 if you do not itemize, you will be allowed a charitable deduction of $300 per return.
  7. Home office clarification: Regardless of “due to covid/”Chinese Virus” or not, employees working from home do not have any means to write-off home office expenses. Only for businesses, including Schedule C, can this deduction be used, and it must be your principal/necessary place of business (See form 8829).
  8. We can now (finally!) electronically file 2019 amended personal federal returns. Paper would take forever!
  9. NEW! Appeals court rules that a criminal’s IRA can be garnished in order to pay restitution
  10. IRS along with the Justice Department is cracking down on employers that withhold payroll taxes and withholdings but use the funds for personal or other business expenses. These funds are called “trustee” taxes since they do not belong to the employer, but only being held temporarily until due. Fines can include employees that have check-signing authority with decision making. (NEVER play with the Treasury’s cash!)
  11. Still time for a SEP IRA if self-employed. Due and funded by 10/15/2020 for tax year 2019
  12. No “final” word yet except that PPP loan “forgiveness” will not have to reported on a form 1040 as cancellation of debt income.
  13. Proposed tax cuts/changes by President Trump.
    1. Tax cuts for the middle class (no details).
    2. 2017 changes already made-make permanent. Otherwise, they expire after 2025.
    3. Capital gains rate- lower the top tier rate of 20% down to 15%, and index for inflation.
    4. Index basis for capital gains for inflation resulting in a lower amount of “gain” to be taxed.
    5. If the Supreme Court entirely throws out Obamacare, the 3.8% surtax on net investment income (includes rentals, winnings, etc.) along with about 1% on earned income would end.
    6. Reduce corporate taxation from the reduced 21% to 20%.
    7. Allow 100% deduction of business meals and entertainment.
    8. Tax breaks to companies that invest in our own US supply chains, so that jobs to the US from get pulled out of China and other countries.
    9. Make 100% bonus depreciation Enhance the R&D tax credit and enhanced business asset expensing
    10. New “Platinum” Plan for black business startups and expansion. Pledged $500B (Will need Congress to get that one) to further reduce poverty and encourage growth and higher incomes
    11. This past Thursday (9/24/2020) President Donald Trump introduced his plan for affordable, high-quality health care, called the America First Health Care Plan. This plan, issued in an executive order, is primarily aimed at protecting people with preexisting conditions and combating surprise medical billing.

      The executive order directs the Departments of Health and Human Services (HHS), Labor and the Treasury to maintain and build upon existing actions to: Expand options for affordable health care and access to affordable medicines; Ensure consumers have access to meaningful price and quality information before the delivery of care; and Reduce waste, fraud and abuse in the health care system.

      The executive order specifically directs HHS to work with Congress to reach a legislative solution to end surprise medical billing by Dec. 31, 2020. If a legislative solution is not reached by that date, the executive order directs HHS to take administrative action to prevent out-of-pocket expenses that cannot be reasonably foreseen.

  14. Proposed tax changes by Former Vice President Biden campaign
    1. Reversal of the 2017 Trump tax cuts. No specifics.
    2. Increased taxes (not sure where/how/who) to finance bold new spending ($4 Trillion was discussed)
    3. Higher teacher pay and more teachers
    4. More stimulus for families (for example, direct payments from the US Government)
    5. education incentives and payments.
    6. student loan forgiveness.
    7. Make employers offer payroll deduction for IRAs. Sounds like what former President Obama proposed back in 2016. No further details.
    8. Wants to “normalize” the differences between the 401K and the IRA deduction on paychecks; no details available, except that if MAX for 401K is $28,000, so will IRA max be the same.
    9. (Note: specific information is difficult to find)- I have researched campaign websites, and tax newsletters, among others. All I can really find are similar things that the Obama/Biden administration used and a few speech talking points. Items appear to be vague at this time.

Still time to schedule your tax planning for 2020 tax year! Just call the front desk and we can schedule you!

We are also booking NOW for remaining available slots for tax season 2021 to prepare 2020 tax returns.

I don’t know if we will be offering in-office meetings, or telephone/facetime only. If the vaccine (4 pending) works after level 3 trials, we likely will be offering in or out of office meetings. Some clients preferred telephone, especially if live far away! You can also pre-request an extension and book into the early summer or later if you wish. We are open year-round!

Have a great rest of 2020!!

STILL TIME TO GET ECI PAYMENT

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VA benefit recipients: If you didn’t file taxes for 2018 or 2019 and have children, act now to get your full Economic Impact Payment from #IRS. For those who missed the earlier deadline, sign up by 9/30: http://irs.gov/nonfilereip #COVIDreliefIRS @DeptVAAffairs
9:00 PM · Sep 26, 2020

Coronavirus Updates 3/31/2020

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SPECIFIC CORONAVIRUS INDIVIDUAL AND BUSINESS CHANGES, CREDITS

03/31/2020

Dear Client:

We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. In addition to the summary of IRS actions and earlier-enacted federal tax legislation that I previously sent you, I now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.

Recovery rebates for individuals.  To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.

The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.

Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.

Charitable deduction liberalizations. The CARES Act makes four significant liberalizations to the rules governing charitable deductions:

(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.

(2) The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.

(3) Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is required.

(4) For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.

Exclusion for employer payments of student loans. An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.

Break for remote care services provided by high deductible health plans.  For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.

Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.

Business only provisions 

Employee retention credit for employers. Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.

The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren’t providing services because of the business suspension or reduction in gross receipts described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.

Wages don’t include (1) wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave (under Code Sec. 45S) or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51). An employer can elect to not have the credit apply on a quarter-by-quarter basis.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes. Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). The relief isn’t available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).

Net operating loss liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.

The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) a 100% deduction of NOLs arising in tax years before 2018, and (2) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965 transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL changes.

Deferral of noncorporate taxpayer loss limits.  The CARES Act retroactively turns off the excess active business loss limitation rule of the TCJA in Code Sec. 461(l) by deferring its effective date to tax years beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law and were treated as NOL carryforwards in the following tax year.)

The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated as part of any net operating loss for the year, but isn’t automatically carried forward to the next year. Another technical amendment clarifies that excess business losses do not include any deduction under Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).

Still another technical amendment clarifies that business deductions and income don’t include any deductions, gross income or gain attributable to performing services as an employee. And because capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital gain taken into account cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Acceleration of corporate AMT liability credit. The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits for tax years before 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.

Relaxation of business interest deduction limit. The 2017 Tax Law generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.

Technical correction to restore faster write-offs for interior building improvements. The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats (1) a wide variety of interior, non-load-bearing building improvements (qualified improvement property (QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property or (2) if required to be treated as alternative depreciation system property, as eligible for a write-off over 20 years. The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.

Accelerated payment of credits for required paid sick leave and family leave. The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.

Pension funding delay. The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

Certain SBA loan debt forgiveness isn’t taxable. Amounts of Small Business Administration Section 7(a)(36) guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes. The loans have to be made during the period beginning on February 15, 2020 and ending on June 30, 2020.

Suspension of certain alcohol excise taxes. The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premises for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARS-CoV- 2 or COVID-19.

Suspension of certain aviation taxes. The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020.

IRS information site. Ongoing information on the IRS and tax legislation response to COVID- 19 can be found at https://www.irs.gov/coronavirus.

I will be pleased to hear from you at any time with questions about the above information or any other matters, related to COVID-19 or not.

I wish all of you the very best in a difficult time.

IMPORTANT OFFICE UPDATE

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IMPORTANT OFFICE UPDATE FROM HENRY KULIK, CPA

March 20, 2020
11:00AM

Dear clients and friends:

At this time, our services remain running at normal business hours through this crisis. We are all getting prepared to work remotely from home if required. That has not happened here yet, however, with the portal system and other tools we have installed, I would expect a smooth transition. I anticipte that the only downside to a remote operation would be that the electronic Portal copy of your tax return would be your only copy (for now).

Our telephone numbers would remain the same, but may have to change the fax number if this happens.  A new fax number will be posted on our website if needed.

Meantime, we are fully staffed at our Leominster office until further notice however, I am moving all client meetings to either:

  1. a Telephone Interview
  2. a Skype or Facetime Video (so you can watch me type!)
  3. or Mail In

We MUST limit face to face meetings until the new drugs become more widely available, and this thing is defeated.

For any telephone or video conferencing, please make sure you send in all your information using our secure portal, or encrypted email.

We are also following CDC and federal/state guidelines to keep safe distances under “social distancing” rules and maintaining a clean environment us much as possible.

PLEASE BE AWARE:

The IRS Treasury Secretary under the direction of the President has extended individual FILING DUE DATES to 7/15/20 rather than 04/15/20.  At first it was only tax payments could be as late as 7/15/20, but now the filing itself can be 90 days later as well.

Please call the office if you have any questions!

Sincerely,

Henry C. Kulik, Jr CPA LLC

TAX PREP OPTIONS W/VIRUS OUTBREAK

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My office is now undergoing daily sanitized cleaning following CDC guidelines. Plenty of soap and water as well as Sanitizer are plentiful through the office.
Clients may opt for an appointment with Henry via telephone or Face-Time/Skype if desired.

We continue to operate under normal business hours and services. The IRS has not pushed the deadline back at this time, thus the 3/15 and 4/15 deadlines still rule.
Thank You

Henry C Kulik, Jr

Certified Public Accountant LLC

IRA RULES CHANGED- WATCH OUT! EFFECTIVE 01/01/20- JUST PASSED IN DC

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WHY DOES WASHINGTON DO EVERYTHING AT THE LAST MINUTE??

 

December 22, 2019

On January 1, 2020, the Secure Act will take effect which will include five significant changes in the rules and regulations for IRA’s.
Massachusetts Income Tax (and the MA IRA Withholding) Rate Drops to 5.00% on January 1, 2020
Previously approved by the House of Representatives, the Senate passed this legislation on Thursday December 19th. President Trump then signed it into law late Friday December 20th.
Thus the SECURE Act is set to become effective on January 1, 2020.
The SECURE Act includes five significant changes to IRA Rules and Regulations:
Age Limit Eliminated for Traditional IRA Contributions – Beginning for Tax Year 2020 and beyond, the new law eliminates the age limit for Traditional IRA contributions (formerly age 70½). Thus as with a Roth IRA, those with eligible earned income can continue to contribute to a Traditional IRA regardless of their age.
RMD Age Raised to 72 – The SECURE Act increases the age for commencing RMDs to age 72. IRA owners reaching age 70½ after December 31, 2019 will not have to take their first RMD until the year in which they attain age 72.
New Exception to the 10% Penalty for Birth or Adoption – The SECURE Act adds a new 10% penalty exception for birth or adoption. The distribution is still subject to tax. It is also limited to $5,000 over a lifetime. But the birth or adoption distribution amount can be re-contributed back at any future time

IRA Contributions with Fellowship and Stipend Payments – Additionally, the new law allows taxable non-tuition fellowship and stipend payments to be treated as eligible compensation to qualify for IRA contributions.

Most Importantly…The “Stretch IRA” Disappears for Many – Beginning for deaths after December 31, 2019, the “Stretch IRA” rules will be replaced with a “Ten Year” distribution rule for most IRA beneficiaries. The rule will require accounts to be emptied by the end of the tenth year following the year of death of the IRA owner. There will be no requirements for annual Beneficiary RMDs as currently exist. The only RMD required of a Beneficiary of an Inherited IRA will be the full Inherited IRA balance being withdrawn by the end of the 10th year after the IRA owner’s death. But for deaths in 2019 or in prior years, the old Beneficiary RMD “Stretch IRA” rules will remain in place.

There are five categories of “eligible designated beneficiaries” who will be exempt from this new 10-year post-death payout rule and who can still use the existing Stretch RMD rules over their life expectancy. These are:
surviving spouses
minor children
disabled individuals
the chronically ill, and
beneficiaries not more than ten years younger than the IRA owner